Featured video

Description: A synthetic narcotic, fentanyl has been detected in an increasing number of illicit drug overdose deaths in Metro Vancouver. Many of the people who died were recreational and/or occasional users and don’t appear to have known they were ingesting fentanyl, as it is easily hidden in other drugs.

Don Cayo: Are B.C’s public-sector pensions really gold-plated?

B.C.’s public-sector pensions are being paid by today’s generation of workers and taxpayers, not tomorrow’s — unlike plans in other provinces and jurisdictions, according to Sun columnist Don Cayo.

Photograph by: Arlen Redekop
, Vancouver Sun

The premise of a new Fraser Institute study of government pensions in Canada seems sharply at odds with some in-depth information the Ministry of Finance compiled, at my request, on B.C.’s major public pension plans.

The former assumes the province’s defined-benefit plans are too expensive and too risky for taxpayers, and ought to be replaced with defined-contribution plans that shift the consequences of potential shortfalls to employees. The latter makes the case that these B.C. plans are well-managed and virtually fully funded, and thus, unlike many defined-benefit plans, won’t force future workers to pay the freight for today’s retirees.

The short section of the Fraser Institute analysis devoted to B.C. notes that in all four plans it studied — the general public service plan, plus separate ones for colleges, municipalities and teachers — the percentage of an individual’s earnings the province contributes in pension premiums has been ratcheted up several times in recent years.

“Thus, in British Columbia, taxpayers have been regularly called upon to increase contribution rates to ensure existing benefit levels,” say the authors, actuary Gordon Lang and Mark Milke, who is a senior fellow of the institute.

Interestingly, this central point in the institute’s criticism is also key to the government’s case that it’s managing these things well.

The difference, obviously, is in the interpretation.

It’s indisputable that higher pension contributions drive up the cost of the civil service. But it’s also true — and laudable, in my view — that both the employer’s and the employees’ portions of these higher contributions are being paid by the right people. That is, they’re being paid by today’s generation of workers and taxpayers, not by tomorrow’s — which is the case whenever pension liabilities are allowed to build up in excess of a pension fund’s ability to pay.

So if B.C.’s major public pensions are fully and sustainably funded, the debate isn’t whether the retirement provisions are too generous. Rather, it’s whether government pay scales — total compensation packages, not just nominal wages — are or are not excessive. Or maybe whether so many people — 282,000 in the municipal plan, plus 223,000 in the other three — are really needed to get the work done. These questions are beyond the scope of either this study or the government-supplied information I have at hand, so that is a discussion for another day.

But B.C.’s circumstances are clearly different from many other provinces’ or the feds.’ In those cases, future taxpayers are much more vulnerable to being left holding the bag because the employer didn’t pay enough and/or withhold enough from employees to cover the eventual costs of pensions.

Nor are these B.C. plans nearly so “gold-plated,” to quote a word favoured by critics, as some other government plans. Those for MPs or senators spring to mind, or the cushy provisions added to the basic public service plan for CEO Mike Corrigan and a couple of other honchos at BC Ferries.

For one thing, the indexing of benefits to inflation is not guaranteed — a provision that’s found in most other government pensions in Canada, and that accounts for up to a third of their liabilities. B.C. plans set aside money for indexing, but eventual payouts will depend on how the pension fund’s investments fare in the market.

Nor are the benefits for retirees all that generous. The average pension, depending on the specific plan, ranges from $16,000 to $30,000, the latter figure for teachers who tend to be in the industry for most of their careers.

Finally, the rate at which pension benefits accrue may look either very good or not so hot compared to the relative handful of defined-benefit plans that remain in the private sector (plans covering just 24.4 per cent of workers, compared to 87.1 per cent in government jobs.)

In most private-sector defined-benefit plans, each year on the job will earn workers an annual benefit amounting to 1.5 per cent of the average salary they earned in their best few years on the job. So 20 years of contributing would earn a 30-per-cent pension, and so on.

In B.C. public plans, the accrual rate is tied to the income ceiling for Canada Pension Plan contributions, currently just over $50,000 a year. For public sector workers making less than this cutoff, the accrual rate is just 1.3 to 1.35 per cent — it varies from plan to plan — because CPP is deemed to make up the difference. For those making more than the CPP ceiling, however, the accrual rate jumps to two per cent, which is among the higher of comparable plans.

We encourage all readers to share their views on our articles and blog posts. We are committed to maintaining a lively but civil forum for discussion, so we ask you to avoid personal attacks, and please keep your comments relevant and respectful. If you encounter a comment that is abusive, click the "X" in the upper right corner of the comment box to report spam or abuse. We are using Facebook commenting. Visit our FAQ page for more information.